Fortune or Folly?
Court freezes Felderhof assets
Wednesday 31 December 1997
Stephen Ewart, Calgary Herald
Millions in assets
of Bre-X
Minerals director
John Felderhof
have been frozen
by a Cayman
Islands court.
The move by
bankruptcy
trustee Deloitte &
Touche came so
quickly that
Felderhof's
lawyers had to
"move heaven
and earth" in the
Caribbean tax
haven on
Christmas Eve to
even get
spending money
for the chief
geologist of
Calgary-based
Bre-X.
Deloitte &
Touche had filed
a civil suit against
Felderhof and his
wife, Ingrid, on
Dec. 18 and
convinced the
Grand Court to
put a freeze on
their bank
accounts and
three posh
homes.
The total value of
those assets was
not released.
"They were
frozen without
any notice to us,"
said Joe Groia, a
Toronto-based
lawyer for Felderhof.
Groia, who described the move by Deloitte & Touche
as unnecessary and inappropriate given the proximity
to the holidays, worked with Caymanian lawyers to get
a judge to hear their concerns at the last moment
before Christmas.
"We were able to free up some living money for
basically the next two months," Groia said Tuesday.
Ross Nelson, a senior vice-president with Deloitte &
Touche in Calgary, cited confidentiality rules imposed
by the court in refusing to divulge details.
"It all arises from Mr. Felderhof's dealings with Bre-X
and his role as an officer and director of Bre-X,"
Nelson said.
Court documents contend he was negligent and
breached his fiduciary duty to the company.
Nelson refused to speculate if the trustee would pursue
similar actions against Bre-X chief executive David
Walsh.
"I can't comment on that at this time," Nelson said
Tuesday.
David Walsh, reached at his seaside home in the
Bahamas, had no fear that Deloitte & Touche would
target him next.
"There's no reason," Walsh said in an interview. "I've
been a part of the ongoing investigation, I'm no risk of
flight and I've been assisting in trying to uncover what
has happened here."
Felderhof was Bre-X's top geologist and its senior
official in Indonesia, where the tiny Calgary-based
mining exploration company said it had discovered a
deposit with 71 million ounces of gold in the Busang
area.
It was exposed as the biggest gold mining fraud in
history last spring and Bre-X, once worth $6 billion on
the stock market, eventually was forced into
bankruptcy.
Bre-X began as a penny stock company. In 1996,
speculation of the massive gold find sent the stock
soaring to a peak equal to $280 before plunging earlier
this year when the massive "salting" scam was
uncovered.
Thousands of investors worldwide lost billions in the
venture.
Walsh reportedly earned some $35 million trading
Bre-X shares. Felderhof has reportedly earned more
than $40 million.
No criminal charges have been laid, but a report
commissioned by Bre-X blamed the fraud on Michael
de Guzman, a geologist who worked with Felderhof.
De Guzman died in March after plunging from a
helicopter near the Busang site.
Dermod Travis, who heads a Montreal-based
shareholders' rights group which is part of a series of
lawsuits launched by people who held stock in the
company, said he is interested to see if Deloitte will
now go after Walsh and others.
"The issue of breach of fiduciary duty regarding the
officers and directors of Bre-X may encompass more
than John Felderhof," Travis said. "If they're limiting it
to just Felderhof, I'd like to know how they determined
that.
Unlike Felderhof, who hasn't left the Caymans since
the scandal erupted last spring, Walsh has spent much
of the year working in Calgary. He returned to the
Bahamas just before Christmas.
Groia said the civil suit was based on "innuendo and
conjecture." Felderhof will contend the suit.
Groia also complained the suit needlessly duplicated
similar court actions against Felderhof already under
way in Alberta and Ontario.
"How many lawsuits do you need?" he asked.
In the documents filed in the court in Georgetown, the
Cayman capital, the assets listed include money the
Felderhofs have in Barclay's Bank, along with homes
on Grand Cayman.
The homes include the palatial $3-million-US seaside
villa at Vista Del Mar which is the couple's primary
residence, a $400,000 bungalow at Snug Harbor and a
$1.2-million condominium on the famous Seven Mile
beach.
The suit also names the Cayman Islands company
Spartacus Corp.
The trustee has requested all records of transfers
between the Felderhofs and Spartacus between 1993
and 1997. Ingrid Felderhof was named in the suit
because ownership of all the homes is under her name.
Felderhof, who has said little publicly since the fraud
was exposed last spring, did submit to a lie-detector
test administered by lawyers last fall. It suggested he
did not know about the tampering of samples at
Bre-X's Busang site.
The Cayman Islands, a British protectorate, is well
known for banking confidentiality and numbered bank
accounts, but in an interview with the Herald last
spring, the president of the Cayman Islands Bankers
Association said the money in banks there is not
untouchable.
"If it (the court) finds there is something criminal, then
there is no protection," Jurg Kaufmann said.
Travis said he was pleased Deloitte & Touche was
leading the action in the Caymans because it had far
more resources to go after Felderhof's assets than did
any shareholders.
Quick Facts
- Action: Deloitte & Touche, the bankruptcy trustee
for Bre-X Minerals, filed a civil suit against John
Felderhof, Ingrid Felderhof and Spartacus Ltd.
- Location: Georgetown, Cayman Islands.
- Court order: Felderhof's Cayman assets have been
frozen by the Grand Court.
- Assets Listed: Funds in Barclay's Bank (value not
disclosed); Vista Del Mar home (value, $3 million US);
Snug Harbor home (value, $400,000 US); Great House
condominium (value, $1.2 million US).
- Elsewhere: Similar court actions are under way in
Alberta and Ontario.
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